drawing on greater amounts of home-grown electricity that is more resistant to natural disasters and attack. Among all new technologies brought about by the SG, besides the increased levels of renewable energy sources, the provision of timely information and control options to consumers, other kinds of deployment of smart technologies, appliances, equipment connected to the grid for instance,consumer devices and advanced metering devices, and real-time pricing of electricity will all significantly influence DSM either as enablers or set new objectives. C.Demand-Side Management under Smart Grid DSM is the planning, implementation and monitoring of utility activities that are designed to influence customer use of electricity. It includes everything that is done on the demand side of an energy system.

While DSM was “utility driven” in the past, it might move a bit towards a “customer driven”activity in the near future due to the SG initiative. 2 Depending on the timing and impact of the applied measures on the customer process, DSM can be categorized into the following. 5 (1) Energy Efficiency (EE). Make use of less energy to provide services and products.To improve energy efficiency of buildings or industrial sites we usually begin with information and insight into the processes involved.

(2) Time of Use (TOU). The cost of electricity varies based on the time of day it is consumed. TOU tariffs penalize certain periods of time (e.g., 17:00–19:00) with a higher price, so customers can (re)arrange their processes to minimize costs. (3) Demand Response (DR). A change in the power consumption of consumer to better match the demand for power with the supply. Also defined as changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time (4) Spinning Reserve (SR).

Anonline reserve capacity that is synchronized to the grid system and ready to meet electric demand within 10 minutes of a dispatch instruction by the ISO. It is needed to maintain system frequency stability during emergency operating conditions and unforeseen load swings. The more dramatic changes are processed and carried on, the more unwanted impact they potentially have onto the customers’ processes. The processes can be manufacturing output, pump power or even optimizing human comfort or health in a building. The lower edge of the DSM spectrum is the energy efficiency measure.

They include all permanent changes on equipment (e.g., exchanging an inefficient ventilation system with a better one) or improvements on the physical properties of the system (e.

g., investing in the building shell by adding additional insulation). Such measures result in immediate and permanentenergy and emissions savings and are therefore the most welcome method. D.The Current State-of-the Art DSM and SG will complement each other.

Most of the DSM techniques, such as smart meters, communication and control systems, and other load control technologies, will play important roles to determine the future of the implementation of smart grid. There have been some major advances made inDSM techniques recently. Here are some of them.A DSM strategy based on a heuristic-based Evolutionary Algorithm (EA) that easily adapts heuristics in the problem was developed for solving the day-ahead load shifting technique which is mathematically formulated as a minimization problem. 8A nonstationary DSM mechanism, which exploits the repeated interactions of the consumers over time that can achieve the social optimum in terms of the total cost, and outperform existing stationary DSM strategies by using a repeated game framework. 9 Another group of researchers use game theory and formulate an energy consumption scheduling game, where the players are the users and their strategies are the daily schedules of their household appliances and loads. 10 Researchers build a DSM system based on simulations that use data acquired from digital meters.

It generates patterns ofload curves, uses these load data patterns to train and validate an artificial neural network (ANN) and uses this ANNtoclassify new data using these defined patterns. 11 Along with the development of the SG, demand side management will have more opportunities as well as challenges, and the advanced metering infrastructure will make more DSM strategies possible. 2 The Smart Grid is not just about utilities and technologies;it is about providing the information and tools a consumer needs to make individual choices about the energy use. Empowered by SG, the DSM is expected to be one of the most critical enabler and powerful player in the future electricity market.

III.AMARKET PRESPECTIVE OF DSM UNDER SGIf one already manages activities such as personal banking from his/her home computer, managing your electricity in a similar manner is no longer a distant dream. A smarter grid will enable an unprecedented level of consumer participation. 12 For example, one no longer has to wait for the monthly statement to know how much electricity has been used. With a smarter grid, a clear, timely, and fine-grained picture of it is available anytime a click away.

Smart meters, among many other mechanisms, will allow the consumer to see how much electricity he/she uses, when it is used, and the associated cost. Combined with real-time pricing, this will allow one to save the cost by adjusting electricity usage habits and routines. While the potential benefits of the Smart Grid are usuallydiscussed in terms of economics, national security, and renewable energy goals, it has the potential to impact every consumer’s electricity quality and cost, and is related to electricity generation from renewable energy resources, which is highly suitable for distributed deployment at the consumer level. 13 While many of the smart grid technologies and objectives are consumer centered, to bring those into reality would heavily rely on various operating parties as well as the utilities.

They will have to develop and incorporate new capabilities in order to fully capture the potential benefits via automated interactions with consumers at all levels via various modernized DSM functionalities. In addition, the pathway through which DSM is envisioned to achieve the SG goals will inevitably hinges upon the electricity market. In the remainder of this section, we will discuss the market pertinent components of generic DSM, the demand side view of the electricity market, and the overall market perspective of the SG.A.

Market-Pertinent Components of DSM A primary focus of the modernized DSM will be on the augmenting program design functions to fulfill the micro objectives and preferences of customers. 14 More specifically, these functions could be divided into the following categories 1) Increase the number of products and programs. Smart grid technology will slash the cost of developing, managing, and refining DSM programs. Smart meter networks provide near-ubiquitous connectivity to electric meters, which increases the ability to verify the impact of specific DSM strategies, and makes it easier to test and refine different DSM design options. Lowering the cost of deploying DSM programs will not only make it economic to provide offerings to the mass market, but also enable utilities to use thedemographic data gathered during the course of DSM program deployment to target micro-segments of their customer basewith tailored and personalized programs along the lines of precision marketing. 15 2) Manage a partner ecosystem. Many utilities and regulators predict that smart grid networks will become open platforms that allow third-party development of energy management applications. From this perspective, utilities will need to possess the capability ofmanaging and coordinating a wide variety of complementary partners, and will need to clearly define their respective roles in the ecosystem.

3) Accelerate the pace of testing. The two-way information exchange facilitated by the smart grids will allow utilities to both speed and widen the testing cycle for new products. 16 They will be able to “test and learn” to understand which program features are most effective for specific segments, thereby reducing the time to market for new concepts and ideas. It is projected that, someday, utilities may be more like the Capital One Bank, whose rigorous analytics and iterative marketing strategiesmeasure the relative impact of hundreds of thousands of different offers (rates, card designs, and promotional materials), to determine which ones have the greatest effect on customer behavior.

This is getting closer to closer to reality especially with the recent leaping development in computing technology. 4) Build account management capabilities. The Federal Energy Regulatory Commission estimates that two-fifths of the DSM opportunity in the U.S. lies in about 262,000 large commercial and industrial customers. While many of these customers participate in fledgling DSM programs such as curtailment and direct load control, some have never been directly affected by these programs. Utilities will need to develop full-service support for customers to navigate and manage DSM programs that will inevitably get increasingly complicated.

5) Educate residential customers. It is projected that, in 2019, almost half of the demand reduction potential will come from the residential market that is highly fragmented. To reach this market, utilities will have to develop easy to understand programs that give customers the tools as well as the incentives to better manage their energy use.

Even with these new capabilities being brought to the market as part of the SG, DSM is facing two more hurdles towards becoming a reality: the right blend of technology and program design must be adopted to optimize outcomes; and, more importantly, regulatory reforms are also in desperateneed in order to allow utilities to capture value from demand-side management. 18 B.Demand-Side View of Electricity Markets The development of electricity markets is based on the premise that electrical energy can be treated as a commodity. To a certain extent, this assumption is undeniable: electrical energy is an undifferentiated good that can be traded in quantity because it could be easily measured. Microeconomic theory therefore suggests that consumers of electricity, like consumers of any other commodity, will increase their demand up to the point where the marginal benefit they derive from the electricity is equal to the price they have to pay. For example, a manufacturer will not produce widgets if the cost of the electrical energy required to produce these widgets makes their sale unprofitable. The owner of a fashion boutique will increase the lighting level only up to the point where the additional cost translates into additional profits by attracting more customers.

Likewise, at home during a cold winter evening, there comes a point where most people will put on some extra clothes rather than turning up the thermostat and facing a formidable electricity bill. 6 If these industrial, commercial, and residential customerspay a flat rate per kilowatt hour for the electricity they consume, they are protected from the spot price for electricity and their demand is only affected by the cycle of their activities. Averaged over a few weeks or months, their demand reflects their willingness to pay this flat rate. But what happens when the price of electrical energy fluctuates more rapidly? Empirical evidence suggests that demand does decrease in response to a short-term price increase, but that this effect is relatively small. In other words, the short run price elasticity of the demand for electricity is small. On a price versus quantity diagram, the slope of the demand curve is therefore very steep.

Determining the shape of the demand curve with any kind of accuracy is practically impossible, especially for a commodity like electrical energy. Nonetheless, it would be interesting to compare the range of prices for electrical energy sold on a competitive market with a measure of the value that consumers place on the availability of electrical energy. 19 One such measure is the value of lost load (VOLL), which is obtained through surveys of consumers and represents the average price per megawatt hour that consumers would be willing to pay to avoid being disconnected without notice.

Utilities have every reason to be skeptical about projections of demand-side management results. Since the 1970s, they have tried to capture load shifting and load reduction benefits, with mixed results. These efforts, however, were limited in scope and relied on technology solutions that may be costly and proprietary. The good news is that there has been significant progress in areas that are vital to the success of DSM.

Utilities are using federal stimulus funding opportunities to deploy statistically significant pilots to measure the impact of various DSM program designs. And regulators are considering reforms that credit utilities for demand-side reductions. Still, much work at all levels remains to be done if the economic and social promise of DSM is to be fully realized in the next decade. C.

An Electricity Market Perspective of the SG Smart grid rollout offers unprecedented opportunities for growth of novel markets for innovative services as well as interoperable products and applications. 20 Layers of digital information and controls technologies overlaid on top of the power grid are being deployed to improve reliability, enhance security, and increase efficiency of the electric grid. This warrants a different imagination on business cases, usage models and growth trajectories. Evolution of another similarly constructed network, the internet, provides valuable insights to understanding the opportunities and challenges that lay ahead. The genius in the Internet is in its plasticity – the ability of the system to evolve in unlimited ways in response to unending novelty of applications and almost limitless scaling. This is the outcome of certain architectural philosophy and principles that were adopted early on to address the openness of the internet.

The architects who crafted the first protocols of the Internet could not have predicted the usage of it beyond the immediate connectivity of a few computers. By enabling world-wide connectivity of information, the Internet today has proven to be one of the largest creators of economic and social value in human history. The volume of e-commerce, the enormous and rapidly expanding volume of merchandises and services delivered over the internet, is estimated at 8 trillion US dollars annually, with the margin attributable to the Internet as a retail channel estimated to be roughly on theorder of 500 billion US dollars 21. With the inclusion of various applications, network connectivity and technology business revenues, today the internet related revenue stacks up to about 3 trillion US dollars, connecting about 2 Billion users’ world-wide.

The growth trajectory of technology and business innovations engendered by the internet was unimaginable during its rollout, and offers instructive examples of almost limitless emergence of economic and social value creation a networked and flexible infrastructure can usher in. Rooted at the modernized DSM functions, the SG will similarly unleash economic and social value creation by offering environmentally and economically responsible choices of generation, transmission, distribution and consumption of electric power and by enabling interconnection-wide trading of electric power through development of agile retail and wholesale markets integrated through an e-commerce trading platform. 22 The smart grid envisioned here would support (internet-like) completely autonomous bilateral transactions in a market transparent fashion while coordinating authorities take on a supervising and regulatory role only. More interestingly, it would incubate new value chains involving information on consumer preferences, participations and choices and a plethora of innovative services ranging from consumer privacy management to differentiated power quality and reliabilityservice for end users possibly by mixing services from utility and customer premise generation.

From this perspective, the DSM will continue evolving as well as being integrated into an expanding list of SG objectives as a critical building block. 23IV.CONCLUSIONSSince DSM was introduced in the 1980’s, it has seen significant successes in extending the capability of the current power grid. Now with the Smart Grid initiative, the DSM is equipped with rapidly advancing technology but is also facing unprecedented challenges such as in the integration of distributed renewable energy resources. Due to its consumer-interactive nature, SG-empowered DSM inevitably plays an important role in the electricity market. 24 In this article, we provided an overview of the historical and technical foundation of SG-empowered DSM, discussed its niches and challenges from a markets perspective. We believe that theintimate integration of DSM with complementary SG functions, and the development of flexible and personalized DSM methods coupled with precision marketing would take DSM to the next big leap.

ACKNOWLEDGMENT AND CONTRIBUTIONS The authors gratefully acknowledge the valuable feedback provided by Prof. Sid Suryanarayanan during the preparation of this article. In this project, everyone has cordially collaborated and worked together. First, after choosing our topic, we did literature search together. Our team designated Xinhu Zhengas our team leader. Then we selected nearly 30 relevant papers to read and everyone in our team read about 10 papers. We then discussed with each other in a meeting about all thesepapers. When starting to write our first draft of the article, our team leader assigned each team member individual tasks to accomplish.

Xinhu Zheng is responsible for the content and structure of the paper overall, as well as the writing of Sections I and III.A-B; Yuan Ji mainly focuseson the writing of Section II; Zefeng Ye is responsible for the writing of Section III.C.

When integrating all sections, we helped each other proofread and make sure that all sessions are coherent. We then worked out the conclusions and abstract collaboratively, as well as putting all references in order. We appreciate and cherish very much the opportunity of teamwork and intensive collaboration on this project, and each of us has learnt a lot on the subject, as well as from each other.

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